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    Is Your Institution in Compliance With the New Prepaid Accounts Rule?

    Is Your Institution in Compliance With the New Prepaid Accounts Rule?

    By: Carly Souther

    FREE iDownloadPrepaid Account Coverage Chart

    Last October, the Consumer Financial Protection Bureau (Bureau) issued a final rule for prepaid financial products. The Rule, which amends Regulations E and Z, seeks to provide comprehensive protections for prepaid financial products, which includes accounts such as payroll card accounts and government benefit accounts.

    Although the effective date of the Prepaid Rule was supposed to be the 1st of October, the CFPB released a proposal on the 9th of March to delay the effective date of the rule until the 1st of March 2017. The CFPB explains the extension is due to consultation with "some industry participants [who] believe they will have difficulty complying with certain provisions of the rule by the current October 1, 2017 effective date. We believe that delaying the effective date by six months will be sufficient for industry participants to ensure they can comply with the rule."

    If your institution hasn't yet begun preparing for these news changes to take effect, then this brief reprieve should be a relief. However, there are a lot of new provisions with which you'll need to comply, so it's prudent to take proactive steps today. (So, congratulations! Reading this post is a good start).  

    The following Q&As will help you gain a better understanding of the scope and purpose of the Prepaid Rule. Please leave any additional questions in the comments and we will reply with an answer within 72 hours. 

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    What types of accounts are defined as prepaid accounts?

    • (1) Payroll Card Accounts
    • (2) Government Benefits Accounts
    • (3) An account marketed/labeled as "prepaid" that is redeemable upon presentation at multiple, unaffiliated merchants (i.e., not a store gift card or gift certificate), or usable at an ATM
    • (4) An account that meets all of the following:
      • (i) is issued on a prepaid basis in a specified amount or is capable of being loaded with funds after issuance; 
      • (ii) whose primary function is to conduct transactions with multiple, unaffiliated merchants; at ATMs; or, person-to-person transfers; and, 
      • (iii) is not a checking account, a share draft account, or a negotiable order of withdrawal (NOW) account. 

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    What types of accounts do not meet the criteria of Prepaid Rule and are therefore not considered to be prepaid accounts? 

    • An account established for a commercial purpose is NOT a prepaid account. 
    • An account held under a bona fide trust agreement is NOT a prepaid account. 

    Commercial and Trust accounts are not subject to Regulation E because they do not meet Reg E's definition of an account. Prepaid accounts are subject to various requirements under Reg E. It therefore follows that if an account is not subject to the Electronic Transfer Fund Act's Regulation E, then that type of account cannot be a prepaid account. 

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    So, essentially, prepaid accounts are simply subject to Regulation E?

    Generally, yes. However, in certain circumstances the Prepaid Rule contains additional requirements for prepaid accounts. For example, the Rule modifies general Reg E requirements to create tailored provisions governing:

    • disclosures;
    • limited liability and error resolution; and, 
    • periodic statements

    Additionally, the Prepaid Rule adds new requirements regarding the internet posting and submission to the CFPB of prepaid account agreements.

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    Still not sure what qualifies as a prepaid account? Download the CFPB's 6-page Chart, which illustrates the criteria under the Prepaid Rule and can be used to help make your account determination.

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    For a thorough review of the Prepaid Rule, register for our upcoming webinar

    Prepaid Cards: What the NEW Rules Mean for You!

    Tuesday, April 18, 2017 - 11:00 AM - 12:30 PM ET
     
    Speaker: Brandy Lalla